Back in late 2011 some of Britain’s biggest housebuilders were displaying signs of being bargain bucket shares with only the glimmer of potential to turnaround their fortunes in the near term. Since then, many of those value plays have seen their prices soar, justifying the bargain hunting credentials behind screening tools such as Benjamin Graham’s NCAV strategy. Eighteen months ago, this strategy was flagging the likes of Barratt Developments (LON:BDEV), Bovis Homes (LON:BVS) and Bellway (LON:BWY) as potentially attractive. But while systematic bargain investors have could have cashed in on their surging price momentum, it’s fair to wonder if these stocks could be at risk once again or whether there is more value to come.

Housebuilders were at the sharp end of the country’s credit fuelled economic collapse when it hit equity markets in 2008. Shares in Persimmon (LON:PSN), for example, the largest of them by market cap, collapsed from £15 to £2.20 during 2007 and 2008. Despite a widely-acknowledged need for new housing, the subsequent collapse of the mortgage market meant many of these companies simply had to down bricks and cut costs where they could.

While shares in Persimmon have since recovered to around £12, many industry-watchers think that the real road to recovery for Britain’s house building sector relies on how and when house prices correct themselves. Some believe that prices remain too high and that the comparatively rapid rebound in prices from the likes of Barratt, Taylor Wimpey (LON:TW.), Bellway and Bovis lack adequate foundations.

Added to the mix is Chancellor George Osborne’s desperation to breathe life into mortgage lending (and house buying), which resulted in a new scheme in his March Budget called ‘Help to Buy’. According to the Home Builders Federation, some 4,000 people have reserved a new home using this Government-backed equity loan in just two months. That all sounds rather promising but detractors fear the move is blocking a correction in house prices and encouraging buyers to take on excessive debt. Albert Edwards at Societe Generale recently described the policy as “an unusually misguided piece of government interference in the housing market”. He stressed that UK house prices, and London most especially, had never been allowed to correct to ‘affordable’ levels and that first time buyers needed cheaper homes not greater availably of debt to inflate house prices even further. He called the policy “madness”.

But for housebuilders, the new scheme is proving to be a boon. In a recent note, HSBC analyst Jeff Davis said the combination of tight supply and the likelihood of improving mortgage lending rates could only help housebuilders and the ‘Help to Buy’ scheme was an added bonus. HSBC believes that ‘Help to Buy’ could unlock significant pent-up housing demand if 95% loan-to-value mortgages become more widely available and their pricing improves. In turn, this could fuel house price inflation, which the bank said would benefit companies like Barratt in particular, whose earnings are most positively geared to such a scenario.

Shares in Barratt have risen by a shade under 50% (currently 309p) since the start of this year, driving the current P/E up to 39x, falling sharply back to 14.3x next year. Of all the housebuilders it has the highest forecast EPS growth, at an impressive 60%, and in May said it was seeing stronger market conditions, supported by the ‘Help to Buy’ scheme. Over at Persimmon, one of the key points of interest has been the start of a long term capital return plan that will see it return £6.20 per share to investors over the next nine and a half years. The cut-off for the first 75p payment was in April (for payment in June) and the share price was expected to take a knock – but it didn’t. In fact shares in Persimmon have been on a strong run this year, up 62% so far, helped by news in February of a 52% increase in underlying pre-tax profits to £225.1 million last year.

Meanwhile share gains at Bovis (up 36% this year) and Bellway (up 28%) have coincided with statements from both companies recently that reservations and sales numbers have beaten expectations. Inevitably, both credited the launch of Help to Buy for stimulating the market.

Last October we noted that the improving picture for housebuilders meant that a number of them were qualifying as momentum stocks because of the EPS upgrades they were attracting from brokers. Our Earnings Upgrade Momentum screen has performed exceptionally well so far this year (up 27.5% in the year to date and up 10.5% over the past three months), with Barratt, Persimmon and Taylor Wimpey proving to be star performers. Interestingly, all three of those shares now appear as candidates on growth GuruModels while most of the others still qualify on various momentum screens. To an extent this illustrates the cyclical nature of stock progression – in this case from bargain value through to momentum and then growth.

For what were bargain stocks back in mid-2011, housebuilders now present a complex picture for investors. While most of these companies have seen their prices fall slightly in line with recent declines in the FTSE All-Share, it appears that improving conditions, ongoing housing demand and political intervention have conspired to create the conditions where they can profit handsomely. Whether those conditions can last remains to be seen but on the most recent performances of these companies there doesn’t seem to be anything imminent that will seriously dent the recent momentum.